10/29/2001(Rueters) - Malaysia's palm oil sector looks to be caughtbetween a rock and a hard place, as demand remains sluggish whileproduction continues to rise, threatening in the process to cause anentirely new headache — storage.Already, a leading palm oil bulker in the south has had to turn awayclients from Sabah and Sarawak, as well as Indonesia, to store some 50,000tonnes of crude palm oil (CPO) as its tanks are full, sources said.Other bulkers appear to be having similar problems with storage capacity,they said, reinforcing concerns that palm oil stock levels are turningcritical not only in Peninsular Malaysia but also Sabah and Sarawak, andeven Indonesia, which is the world’s second largest producer of thecommodity after Malaysia.And the situation could get worse in the coming months in the absence ofsigns of a let-up in production although demand has shown an uptick. Thereare 31 licensed bulkers in the country, with facilities located in Johor,Pahang, Penang, Selangor, Sabah, and Sarawak. Combined, they can hold upto 850,000 tonnes of CPO at a time. Johor leads with a capacity to store267,000 tonnes, followed by Selangor with 247,855 tonnes, Pahang 120,880tonnes, Penang 115,500 tonnes, Sabah 94,840 tonnes and Sarawak 3,600tonnes. Felda Johor Bulkers Sdn Bhd has the largest capacity at 242,000tonnes. The other leading bulkers include Fima Palmbulk Services Sdn Bhd,Butterworth Bulking Installation Sdn Bhd, Wilmar Bulking Installation SdnBhd, and Guthrie Export Sdn Bhd."It is a very tricky situation. Exports have been significantly affectedby developments in Afghanistan. "The market did not anticipate it... animmediate issue is the war risk surcharge, (for which) a quick solutionmust be found," said a executive of a bulker when contacted. If things donot improve soon, producers may have to start selling CPO at even lowerprices, and the authorities consider reactivating the programme to usepalm oil as biofuel to generate electricity, he said.Crop forecaster Ivan Wong has put October production at 1.14 milliontonnes, exports at 850,000 tonnes and closing stocks at 1.37 milliontonnes. Exports for the first 20 days of October rose to 605,137 tonnesfrom 434,472 in the same period of September, according to Cargo surveyorSociete Generale de Surveillance (SGS)."Outlook for the palm oil sector appears clouded at the moment as theglobal economic slowdown has caused commodity prices to weaken generally.Low prices for rival soyabean oil and the extra cost from the war risksurcharge in the wake of the September 11 terrorist attack in the US arenot helping," a trader said.Dealers said CPO prices are expected to remain range-bound in the next fewweeks as investors closely monitor stock levels and also the price ofsoyabean oil, which is hovering at 20-year lows. According to theMalaysian Palm Oil Board, the country’s palm oil stock rose by 36.44 percent to 1.214 million tonnes in September from 890,413 tonnes a monthearlier, with production rising 12.19 per cent to 1.1 million tonnes from981,141 tonnes.Meanwhile, CPO futures prices on the Malaysia Derivatives Exchange (MDEX)closed sharply higher yesterday on assurance by the Government of "warassistance" for the sector. Traders said benchmark January 2002 CPOfutures should fetch between RM860 and RM930 a tonne in the near term amidvolatile trading.The November contract rose RM21 to RM869, December RM17 to RM909, andJanuary 2002 also RM17 to RM933. February 2002 was up RM21 at RM953. Totalturnover jumped to 2,060 lots from 1,622 while open positions increased to12,992 contracts from 12,629 the day before.